Back to the 70s? Interview with TUI’s CEO on the return of the package holiday

A cursory glance at the Peter Long interview in yesterday’s Daily Telegraph might lead the reader to think that the traditional package holiday, until recently consigned to the annals of history, is coming back into vogue. However, a more considered interpretation of his views would be that there is little “new news” from the TUI CEO.

TUI have stolen a march on the rest of the European tour operators in recent years – whereas the more traditional players continued to sell the same traditional product they had been peddling for a quarter of a century or more, leaving themselves open to attack on both margin and volume from the dynamic packagers and low cost airlines, TUI chose a different path.

Differentiation is the key

TUI has been proactive in its response to the rise of the internet – reinventing itself and raising genuine barriers to entry – protecting both volumes and margins in the process. It has successfully segmented its brands – within its mainstream division (the area most under threat from the OTAs and DIY brigade), First Choice is now 100% all-inclusive, and over 75% of Thomson holidays are now exclusive (with the operator having managed to squeeze out rival Thomas Cook from many of their supplier bases in recent years). By offering properly differentiated product, with the added bonus that it comes with the comfort of a fully (ATOL) protected package, TUI has built a genuinely defensive position.

Rival operators offering more commoditised packaged product are likely to find that the consumer sees marginal value in the comfort of ATOL protection, and they won’t be able to charge a significant premium for it.

The themes in this are not new to any of us – those agents and operators that offer contemporary and differentiated product (i.e. what people actually want to buy and are prepared to pay a decent price for), and which cannot easily be replicated, will find a receptive market in 2013.

Those agents and operators that have not evolved will find themselves in a far more difficult position – a large pool of capacity and dwindling demand can only lead to increasingly acute pressure of prices and margins.

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